Labor preparing to announce major new tax policy to rival negative gearing crackdown

Bill Shorten is preparing to unveil a major new economic policy as soon as next weekend which could raise billions of dollars for the budget and rival the party's bold negative gearing and capital gains tax crackdown in terms of political risk.

Senior Labor figures were tight-lipped on Friday about what the new tax policy will be but Fairfax Media understands it could be signed off by shadow cabinet next week and has been pencilled in for an announcement at the NSW Labor Party conference on July 29.

The move signals Mr Shorten's willingness to take on the Turnbull government over the politically fraught topic of tax, rather than play it safe and attempt to preserve Labor's commanding lead in the opinion polls.

Mr Shorten dropped hints during a speech in Melbourne on Friday, saying Australia must examine the "old and growing faults" in the tax system and pursue "reforms that in the past we might have dismissed as too politically difficult".

Mr Shorten observed voters were "hungry for something more substantial than the current political fare".

Sources in the shadow ministry said Labor had decided it could not pursue a small target strategy ahead of the next election, which could be held as soon as late 2018.

"Tony Abbott's election in 2013 showed the small target strategy is dead. It can help you win an election but it makes it impossible to govern," one shadow minister said.

Another senior source said details of the policy had not been finalised and stressed "the announcement has not been locked in yet".

Some options available to Labor to raise additional revenue include a crackdown on the use trusts to minimise tax - which could conservatively raise between $2 billion to $3.5 billion per year - and ending the diesel fuel rebate used by the miners and farmers, which would raise about $4 billion per year, but which successive governments have baulked at.

Labor's capital gains and negative gearing policies were announced at the 2016 NSW Labor Party conference and the party is hoping to repeat the success of that announcement next weekend.

The Opposition Leader used his speech to the Melbourne Institute's Economic and Social Outlook Conference to declare tackling inequality would be the "defining mission" of a future Shorten government and to promise an overhaul of Australia's maze of tax subsides.

"With a budget deficit racing past half-a-trillion dollars, we have a responsibility to do more than look at tax rates and spending levels," he said.

Mr Shorten said the average Australian spent $348 managing their tax affairs. But some of the most aggressive tax-minimisers claimed tax affairs-related deductions averaging $2.5 million.

He said Labor would cap the deduction at $3000 for individuals - a change affecting less than one in 100 taxpayers and save the budget $1.3 billion over the medium-term.

During a later press conference, the Labor leader effectively confirmed his Friday speech was designed to prepare the ground for a major policy announcement but declined to elaborate when pressed.

"I think before we can talk about reforms we have got to get agreement there's a problem," he said.

"What I'm promising Australians disillusioned with the political process is we are taking our job as opposition seriously. Sure we are holding the government to account for the mistakes they make, and there are a few of them. But we are doing the hard work for a social program to present to the Australian people at the next election."

In the lead-up to the 2016 election Labor promised to wind back negative gearing and capital gains tax concessions, saving $31.1 billion over a decade - a policy the government attacked as reckless.

James Massola is south-east Asia correspondent based in Jakarta. He was previously chief political correspondent, based in Canberra. He has been a Walkley and Quills finalist on three occasions, won a Kennedy Award for outstanding foreign correspondent and is the author of The Great Cave Rescue.